10.13.2011 Abdulbaki, Nina Complaint - Klein & Associates

16 Pages·2011·0.06 MB·English

Case 2:11-cv-00953-SA Document 1 Filed 10/13/11 Page 1 of 16
MANNING CURTIS BRADSHAW
& BEDNAR LLC
David C. Castleberry [11531]
[email protected]
170 South Main, Suite 900
Salt Lake City, UT 84101-1655
Telephone [phone]
Facsimile [phone]

Attorneys for Plaintiff R. WAYNE KLEIN, the
Court-Appointed Receiver of U.S. Ventures, LC,
Winsome Investment Trust, and the assets of Robert
J. Andres and Robert L. Holloway

UNITED STATES DISTRICT COURT

DISTRICT OF UTAH

R. WAYNE KLEIN, the Court-Appointed
Receiver of U.S. Ventures LC, Winsome
Investment Trust, and the assets of Robert J. Case No. _____________________
Andres and Robert L. Holloway,
COMPLAINT TO AVOID FRAUDULENT
Plaintiff, TRANSFERS, FOR CONSTRUCTIVE
TRUST AND OTHER PROVISIONAL
- vs – REMEDIES AND FOR DAMAGES

MAZEN RAMZI ABDULBAKI and
NINA ABDULBAKI,

Defendants,

Plaintiff R. Wayne Klein, the Court-Appointed Receiver (the “Receiver”) of U.S.
Ventures LC (“US Ventures”), Winsome Investment Trust (“Winsome”), and all of the assets of
Robert J. Andres (“Andres”) and Robert L. Holloway (“Holloway”) (collectively, the
Case 2:11-cv-00953-SA Document 1 Filed 10/13/11 Page 2 of 16
“Receivership Defendants”), by and through his undersigned counsel, states and alleges as
follows:
NATURE OF THE PROCEEDING
1. The Receivership Defendants had been operating a classic Ponzi scheme since at
least 2005 by obtaining funds from investors through violation of the federal commodities laws
and using the funds from investors to pay bogus returns to earlier investors. In the course of the
Ponzi scheme, the Receivership Defendants made material misrepresentations and omissions,
misappropriated funds, and committed fraud as a commodity pool operator, all in violation of the
Commodity Exchange Act (“CEA”).
2. On January 24, 2011, the Commodity Futures Trading Commission (the “CFTC”)
filed a Complaint against the Receivership Defendants in the United States District Court for the
District of Utah, Case No. 2:11CV00099 BSJ (“CFTC Action”). This suit alleges, among other
things, that the Receivership Defendants operated an investment program in violation of the
registration, licensing, and anti-fraud requirements of the federal commodities laws. In essence,
the CFTC alleges that the Receivership Defendants engaged in a Ponzi scheme whereby over
$50 million was fraudulently taken from investors.
3. On January 25, 2011, the Receiver was appointed by the District Court to act as
receiver in connection with the CFTC Action.
4. On February 2, 2011, the Receiver filed a Notice of Receivership with the
Southern District of Texas pursuant to 28 U.S.C. § 754.
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5. The instant action is brought by the Receiver as part of his continuing duty to: (i)
recapture and return investor funds that were sent to US Ventures and Winsome and then
diverted by the Receivership Defendants in the course of their massive Ponzi scheme, and (ii)
avoid fraudulent transfers, seek a constructive trust, and obtain other provisional remedies and
recover damages.
THE DEFENDANTS
6. Defendants Mazen Ramzi Abdulbaki (“Mazen”) and Nina Abdulbaki (“Nina”)
(collectively, the “Abdulbakis”) received funds from Winsome without having provided
equivalent value to Winsome.
JURISDICTION AND VENUE
7. This Court has jurisdiction over the subject matter of this lawsuit because this
lawsuit is ancillary to the CFTC Action and the appointment of the Receiver by this Court.
8. This Court has personal jurisdiction over the Defendants in this matter pursuant to
28 U.S.C. § 754 and 28 U.S.C. § 1692.
9. Venue is proper in this Court under 28 U.S.C. § 754.
THE RECEIVER, STANDING, AND STATUS OF THE CFTC ACTION
10. On January 25, 2011, in the CFTC Action, the District Court entered an Order
Granting Plaintiff’s [CFTC’s] Ex Parte Motion for Statutory Restraining Order (the “Order”).
This Order included the appointment of a receiver. The Receiver was appointed as receiver of
US Ventures and Winsome, together with any business entities owned by any Receivership
Defendant. Pursuant to that Order, the Receiver was to take control of the funds, assets, and
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property of the Receivership Defendants wherever situated, and is fully authorized to pursue this
action against Defendant.
11. Since the filing of the CFTC’s action, defaults have been entered against
Holloway and US Ventures; preliminary injunctions have been entered against all defendants in
that action.
THE FRAUDULENT PONZI SCHEME
US Ventures
12. US Ventures was a Utah limited liability company headquartered in Salt Lake
City, Utah that was run by Holloway. US Ventures claimed to be engaged in the trading of
commodity futures in a manner that generated high investment returns for investors, with returns
averaging 1% per day. US Ventures claimed to have very few days with losses; many investors
were told there had been only one day of losses since the inception of trading.
13. US Ventures never registered any of its investment offerings under the securities
laws or commodities laws. Neither Holloway nor US Ventures was registered with the National
Futures Association during this time period, as required. Neither Holloway nor US Ventures was
licensed to sell securities during this time period.1
14. Beginning in February 2005 and continuing through April 11, 2007, Holloway
and US Ventures sold securities in the form of investment contracts, profit participation
agreements, and interests in a commodity pool to investors. Holloway and US Ventures also
acted as commodity pool operators and commodity trading advisers for the funds raised from

1 Holloway had been licensed to sell a limited range of securities between 1981 and 2001.
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investors. During this time period, Holloway and US Ventures raised over $27 million from
investors.
15. Holloway and US Ventures opened and maintained nine commodity futures
trading accounts in the name of US Ventures with three Futures Commission Merchants
(“FCM”).
16. US Ventures was to receive 30% of the net trading profits for each day that US
Ventures earned profits. However, US Ventures was responsible to cover trading losses out of
its own funds on days where trading resulted in losses.
17. Despite representations to investors that the commodities trading rarely resulted in
losses, over 40% of the trading days resulted in losses. The average losses on unprofitable
trading days were significantly greater than the average gains on profitable days. As a result, the
aggregate losses exceeded the aggregate profits earned.
18. US Ventures sent $25.9 million to brokerage accounts at the three FCMs.
Between February 2005 and April 2007, US Ventures lost $10,186,494.62 in commodities
trading. The remaining $15,731,483.38 was withdrawn, almost all of it to pay distributions and
returns of principal to investors.
19. Notwithstanding these losses, US Ventures paid itself commissions and paid
distributions to investors based on reports of profits during this time period. Account statements
were prepared and sent to investors reporting consistent profits. Investors were given daily
reports by US Ventures showing that the trading had never incurred losses during the time the
investors were in the investment pool.
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20. Of the twenty five months in which commodity futures were traded, twenty had
losses. Four of the first five months of trading resulted in losses for the month. At least as early
as November 2005, US Ventures was insolvent, owing investors significantly more than the
value of holdings in its brokerage accounts.
21. Despite incurring significant trading losses, US Ventures reported profits to
investors. Many investors withdrew funds from US Ventures, either as profit distributions or
withdrawals of their investments. Because US Ventures was not making a profit, these payments
to investors were made from the investment principal of existing investors or from amounts that
were sent to US Ventures by other investors.
22. This means that US Ventures was operating as a Ponzi scheme from at least
November 2005.
Winsome Investment Trust
23. Winsome described itself as a private trust, headquartered in Houston, Texas.
Winsome was run by Andres, who had complete and sole authority over the trust.
24. Andres and Winsome solicited individuals and entities to send funds for
participation in a commodity futures pool that Winsome said it managed or controlled. Some of
the participants (investors) were told that US Ventures was doing the trading; others were led to
understand that Winsome would be conducting the commodities trading.
25. Much of the money gathered by Winsome was received from third-party
marketers – individuals who solicited others and were paid commissions for bringing in investors
or were paid a percentage of the profits the investors were reported to have earned.
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26. Between October 2005 and April 2007, Andres and Winsome collected over $42
million from investors – either directly or through third-party marketers.
27. In mid-2006, Andres and Holloway reached an agreement that as Andres raised
additional funds from investors, Andres would no longer send those funds to US Ventures.
Under this arrangement, US Ventures agreed to change its accounting records to reflect the
receipt of investments in the amounts reported by Andres to Holloway – even though Andres
was no longer sending money to US Ventures or Holloway.
28. Out of the more than $42 million Winsome received from investors before April
2007, Winsome sent $24.7 million to US Ventures. The remainder was retained by Andres and
Winsome. This money was used to make distribution payments to other investors, for other
investment programs being pursued by Andres and Winsome, and for the personal uses of
Andres, including payments to his wife.
SEC Lawsuit, Asset Freeze
29. On April 11, 2007, the SEC filed a lawsuit in United States District Court for the
District of Utah against Novus Technology and other defendants. The SEC lawsuit named US
Ventures and Holloway as relief defendants. At the request of the SEC, the court entered orders
freezing the assets of Holloway and US Ventures. SEC v. Novus Techs., LLC, No. 2:07-CV-
00235 (D. Utah, filed Apr. 11, 2007).
30. The freeze of US Ventures’ assets applied to its bank accounts and FCM
brokerage accounts. At that time, the bank accounts had aggregate balances of less than $500.00
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and the brokerage accounts had aggregate negative balances – meaning all the money had been
lost in trading, paid out to investors, or used to pay personal expenses.
Winsome Investments After April 2007
31. After the assets of US Ventures were frozen by the Court in April 2007, US
Ventures ceased conducting any commodities trading. Winsome, however, continued to solicit
and accept funds from investors (directly and through third-party marketers). Investors were told
a variety of stories, including representations that commodities trading was still taking place and
that Winsome had other investment projects it was pursuing.
32. Between April 11, 2007 and December 10, 2010, Winsome collected an
additional $33,752,843.91 from investors.
33. When the CFTC filed suit against the Receivership Defendants on January 24,
2011, the bank and brokerage accounts for the defendants had aggregate account values of less
than $1,000.00.
34. At the time that the US Ventures commodities trading program was halted by the
asset freeze, US Ventures owed more than $30 million to Winsome. Winsome owed at least this
amount to its investors. Because US Ventures had no assets and its commodities brokerage
accounts had net negative values, Winsome’s share of the value of the US Ventures trading
account was zero. This means US Ventures had liabilities of more than $30 million and zero
assets.
35. Because the vast majority of Winsome’s assets during the period from October
2005 to April 2007 consisted of a derivative interest in the value of the US Ventures
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commodities trading accounts and because the net value of these accounts declined steadily,
culminating in a complete loss of all account value by April 2007, Winsome owed more to its
investors than the value of Winsome’s interest in US Ventures. This resulted in Winsome’s US
Ventures investment having negative equity at least as early as November 2005.
36. As noted above, Winsome took from investors at least another $33,752,843.91
after April 2007. Winsome owed returns of principal to these investors as well as the interest or
profit participations reported to investors in periodic account statements.
37. To the extent the investor funds were used to make distribution payments or
returns of principal to other investors or were used by Andres for personal uses, these
expenditures did not result in Winsome acquiring or holding any assets.
38. To the extent the investor funds were used in other investment projects pursued
by Andres and Winsome, those investment projects did not result in tangible assets or payments
to Winsome, meaning the expenditures resulted in decreases in the net worth of Winsome, rather
than increases. For example:
a. Andres caused Winsome and related companies to spend at least $6.4
million in an effort to purchase several companies related to Aerospace Consulting Corp. After
paying more than $4.2 million directly for the purchase of Aerospace, Winsome was found in
default and declared to have forfeited any interest in the company.
b. More than $2.3 million was spent for a privately-funded project in Mexico
called National Infrastructure Development Master Plan and for efforts to receive approval to
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build an oil refinery in Guatemala. Winsome has not received any of the $20.2 million it was
promised for these projects.
c. Over $3 million was spent to free up an inheritance for Cindy Moore, that
supposedly was being improperly withheld. Moore promised Winsome $24.8 million for its help
in securing the release of the large inheritance. Winsome has received no benefit from these
payments.
d. In an August 2006 balance sheet, Winsome claimed an ownership interest
in 100,000 acres of land in the Bahamas, precious metals, collections of coins and stamps, and
500 metric tons of gold. Winsome and Andres expended investor funds to acquire interests in
these assets, but has none of these assets and has demonstrated no rights to these assets – to the
extent they even exist.
e. Winsome and Andres paid over $1.1 million of investor funds to
companies that promised licensing rights and access to contracts valued at $100 million.
Winsome has no assets to show for these expenditures.
f. At least $140,000.00 was spent by Winsome trying to claim $500 million
in “U.S. Treasury Checks” that the Federal Reserve Bank of New York was supposedly holding
for a Wilfredo Saurin. An interest in these funds was supposedly transferred from Saurin to
another individual named Antonio Yu, and from Yu to Winsome. There is no reasonable basis to
believe this money is being held by the Federal Reserve and Winsome has no demonstrable
claim to the funds.
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